FERC, CFTC, and State Energy Law Developments

The New Jersey Board of Public Utilities (BPU) approved the nation’s largest single-state offshore wind solicitation in the United States on September 17, 2018, with an Order opening up an application window for the solicitation of 1,100 megawatts (MW) of offshore wind capacity. Stakeholders anticipate additional procurements in light of the BPU’s announcement that it intends to solicit an additional 2,400 MW, in two tranches of 1,200 MW, by 2022.

The first application window closed on December 28, 2018. Three applications were submitted to the BPU. Successful applicants in the current procurement will receive state subsidies in the form of Offshore Wind Renewable Energy Credits (ORECs). To be eligible for BPU approval, applicants will need to demonstrate that, among other things, their project (i) will have a positive net in-state economic and environmental benefit; (ii) will have a “reasonable ratepayer impact;” and (iii) is likely to be constructed on time and on budget.

The New York State Public Service Commission (PSC) has issued an order establishing a statewide goal of 3.0 GW of energy storage deployments by 2030—with an interim target of 1.5 GW by 2025—and related reforms to encourage that development.

The order is the latest step in a broader plan being implemented by state authorities to dramatically boost the presence of energy storage in New York. In November 2017, the state legislature enacted a law directing the PSC to establish a statewide energy storage goal for 2030. In January 2018, Governor Andrew M. Cuomo announced a target of 1.5 GW of deployed energy storage by 2025. In mid-2018, PSC staff and the New York State Energy Research Development Authority (NYSERDA) jointly developed the New York State Energy Storage Roadmap (Roadmap) to provide the PSC with recommendations on the policies, regulations, and initiatives needed to meet those targets.

The Federal Energy Regulatory Commission (FERC) issued an order on the Minimum Offer Price Rule (MOPR) in the PJM Interconnection, L.L.C. (PJM) tariff on June 29, addressing recent controversies over the capacity market impact of some generators receiving state rate subsidies. In the June 29 order, FERC rejected two alternative proposals by PJM to modify the MOPR in response to concerns of state subsidization of new generation resources, granted a complaint filed by market participants against the MOPR, and instituted a paper hearing proceeding under Section 206 of the Federal Power Act (FPA) to determine the just and reasonable revisions to the PJM tariff that would be necessary to address the subsidization issues. The resulting FERC proceeding promises to significantly reshape the PJM capacity market, which has struggled for years to address in a manner that FERC would accept the market impacts of subsidies to specific resources. FERC’s decision, although limited to PJM, could also lead to widespread changes in other capacity markets dealing with the same issues.

Background

The MOPR is a feature of PJM’s Reliability Pricing Model (RPM), which is PJM’s capacity market. Through the RPM, PJM conducts a series of auctions to procure resources to meet regional reliability reserve requirements. A variety of resources may participate, including fossil-fuel, renewable, and demand response resources. Winners of the auction are awarded a fixed price for their capacity in exchange for a commitment to make their capacity available for dispatch by PJM.

The heads of 12 federal agencies signed an MOU on April 9 committing to “a more predictable, transparent and timely Federal review and authorization process for delivering major infrastructure projects.” The signatory agencies, all of which have responsibilities to review or authorize infrastructure projects, agreed to take certain steps to create a more coordinated and streamlined federal environmental review process. Although the commitments in the MOU are voluntary and not mandated by statute, adherence to them could shorten the period of time required by the Federal Energy Regulatory Commission (FERC) to perform National Environmental Policy Act (NEPA) reviews.

Background

President Donald Trump signed Executive Order (EO) 13807 (“Establishing Discipline and Accountability in the Environmental Review and Permitting Process for Infrastructure Projects”) in August 2017. This EO was intended to speed up the environmental reviews required for major infrastructure projects by mandating additional coordination and planning activities among various federal agencies. The EO defines “major infrastructure project” as “an infrastructure project for which multiple authorizations by Federal agencies will be required to proceed with construction, the lead Federal agency has determined that it will prepare an Environmental Impact Statement (EIS) under [NEPA] . . . and the project sponsor has identified the reasonable availability of funds sufficient to complete the project.”

The renewable energy industry, now designated as a technology and innovation-related area of special concern to the protection of the US industrial and scientific base, is one of seven sectors that the United States Trade Representative recently identified as being of significant national security concern.

Foreign acquisitions and investments in the renewable energy industry, including wind, solar, and hydroelectric power, have been targeted for additional scrutiny by the Trump administration in the voluminous report issued March 22 by the White House Office of the United States Trade Representative (USTR). The USTR’s primary concern in its investigation was with acquisitions and investments related to technology transfer, intellectual property, and innovation in seven industry sectors that it specifically identified as being of significant national security concern. Renewable energy is one of the seven sectors highlighted for increased scrutiny, through expanded reviews of certain types of deals by the Committee on Foreign Investment in the United States (CFIUS). While the USTR report focused on Chinese acquisitions and investments, the identification of renewable energy as one of the seven main industry sectors of concern means that acquisitions and investments by entities in other foreign nations may also be subject to heightened scrutiny by CFIUS. This Morgan Lewis LawFlash by our CFIUS Group summarizes the USTR report and provides links to the report and to the Presidential Memorandum also issued March 22, directing certain actions in furtherance of the USTR’s recommendations.

In response to concerns that the ability of the electric system to provide frequency response following a system disturbance is falling across the United States, the Federal Energy Regulatory Commission (FERC) changed its generation interconnection requirements on February 15. Frequency response is, generally speaking, the ability of the system to quickly return to 60 Hz frequency following a system event such as the sudden loss of a generator. If frequency is not immediately corrected, over- or under-frequency events can occur, which would lead to more and more facilities tripping out of service. The ability of the bulk electric system to provide frequency response is therefore critical in order to avoid cascading outages.

Under the revisions to the pro forma Large Generator Interconnection Agreement (LGIA) and the Small Generator Interconnection Agreement (SGIA), nonsynchronous generators (typically renewable generation) will for the first time be required to have equipment that enables the generator to provide frequency response. Previously, only synchronous generators were required to have that capability because of concerns that nonsynchronous generators were not technically capable of providing that service. FERC found that with recent technological developments there is no longer a reason to treat synchronous and nonsynchronous generation differently on this issue.

The new requirements will apply only to new interconnection agreements, including those driven by changes at an existing generator that necessitate a new interconnection agreement.

The Kleinman Center for Energy Policy invited energy practice partner Ken Kulak to discuss corporate America’s efforts to deepen their clean energy commitments during a recent episode of podcast Energy Now. During the podcast, Ken discusses increasing corporate commitments to sustainability and strategies for procuring renewable energy, including virtual power purchase agreements.

Like similar laws in many other states, Pennsylvania’s Alternative Energy Portfolio Standards Act (the AEPS Act) requires electric distribution companies (EDCs) and competitive retail electric generation suppliers (EGSs) to purchase an increasing percentage of energy from renewable energy sources. The AEPS Act also includes a “set-aside” that requires some of that renewable energy—as measured in alternative energy credits (AECs)—to be derived from solar photovoltaic (solar PV) facilities.

Until recently, Pennsylvania EDCs and EGSs could meet their solar PV requirements using solar AECs generated from solar PV facilities located anywhere within PJM, the regional transmission organization that includes Pennsylvania and all or part of 13 other states (including Washington, DC). Now, under Act 40 of 2017, signed into law on October 30 by Governor Tom Wolf, the rules have changed.

In a declaratory order issued on October 4, the Federal Energy Regulatory Commission (FERC) clarified that prior approval under Section 203 of the Federal Power Act is not required for certain types of tax equity investments, substantially simplifying and expediting regulatory requirements.

Read the full LawFlash.

On June 8, the North American Electric Reliability Corporation (NERC) released its report on the loss of 1,200 MW of solar generation in southern California during a system disturbance that unexpectedly caused inverters at solar generation facilities to trip or momentarily cease to operate. The report provides solar plant owners and engineers with recommendations to prevent future occurrences. According to NERC, inverter disconnect events pose an increasing reliability risk given the expansion of solar generation.

Growing solar penetration has made the response of solar generators to system disturbances more critical. If NERC and utility-scale solar generators adopt the report’s recommendations, the likelihood of both recurrences and government-imposed regulations will be reduced. The Federal Energy Regulatory Commission’s (FERC’s) recent orders requiring renewable generation to promote frequency response (Docket No. RM16-6), reactive power (Order No. 827), and ride-through capability (Order No. 828) indicate a willingness to impose regulatory requirements on renewable generation where FERC sees it as necessary to preserve system reliability. Separate and apart from NERC action and any voluntary industry response, the report may lead FERC to consider such action.

Continue reading the LawFlash.